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Constraints on financing, restrictions on services and not so much access to technology emerged as one of the biggest challenges in the innovation, deployment and diffusion of clean energy technologies during an unusual session last week in Geneva which brought together climate scientists and trade policy wonks. Technologists and chemical engineers also came together to discuss how unlocking trade could help clean technologies in the context of the implementation of the Paris agreement on climate change.

WTO panel on clean tech

The expert panel on 29 June was organised jointly by the World Trade Organization Trade and Environment Division and the Grantham Institute, Imperial College London.

Climate Change

The session opened with a presentation by Prof. Joanna Haigh, co-director, Grantham Institute for Climate Change & Environment. Haigh, who has been a lead author on the Intergovernmental Panel on Climate Change. She told the gathering, “The challenge of climate change in terms of meeting reduction in carbon emissions will not be possible without the involvement of the trade community.”

Haigh went into detail about the parameters and models used to determine and estimate the impacts of climate change. She touched upon the causes of global warming, various scenarios of climate change impact, global energy consumption and the interventions needed to counter climate change.

Carbon emissions are the main cause of the rise in global temperature, said Haigh, and the UN is trying to limit the rise in global temperature to 2 degrees by restricting total emissions to a 1000 gigatonnes of carbon dioxide. (There has been a rise in global average temperature of 1 degree.)

A reduction in emissions is the only sensible option to meet the climate challenge, she said. Highlighting the success in reaching a climate agreement in Paris in December 2015, she said that even if Intended Nationally Determined Contributions (INDCs) were implemented, the world was bracing for a 3.5 degree rise in temperature by 2100, and still rising. She emphasised the need for a faster transition to net zero – a complete cessation of the emission of carbon dioxide into the atmosphere.

How Trade Can Help Address Climate Change

The session was moderated by Aik Hoe Lim, director of the WTO Trade and Environment Division.

Lim said that trade could help prepare for impacts of climate change by reducing costs of clean energy technologies, improving access and helping in dissemination.

While tariffs on components for renewable energy generation can be lowered, standards, technical barriers and conformity assessments might still diverge across countries contributing to fixed costs for firms, ultimately impacting dissemination and deployment. Such non-tariff measures can be particularly detrimental to the participation of small and medium enterprises in global value chains, he said.

There are also considerations on how investments can be stimulated to encourage clean technologies. He drew attention to the linkage between investments and services, and how restrictions in services can be a major bottleneck for trade in clean energy technologies. Citing the example of the solar panel supply chain, he said that as much as 70 percent of value added in solar PV is services-related.

“Even if goods become cheaper, services and investment components will need to be addressed for effective deployment,” he said.

WTO members already have a Doha Round negotiating mandate for the reduction, elimination of tariff and non-tariff barriers for environmental goods and services. Further trading internationally can help traders to improve environmental standards, by adopting green technologies domestically.

“Trade policy can complement environment policy,” said Lim. “For example, as energy efficiency requirements cover an ever-growing share of goods, WTO’s efforts to promote harmonisation towards international standards under the Technical Barriers to Trade [TBT] Agreement can have a positive effect wherever these are higher than domestic standards.”

Intellectual Property

Speaking about the role of intellectual property rights, Jayashree Watal, counsellor in the WTO Intellectual Property Division, said that improving innovation and access has been a concern for developing countries in climate change negotiations.

In the context of climate change mitigation and adaptation technologies, patents and trade secrets have been instrumental in incentivizing innovation, she said. (The bulk of the data available was around mitigation technology and patents, Watal clarified.)

Many renewable energy technologies are in the public domain she said, citing earlier studies [pdf]. And unlike pharma sector IPR costs are not the bulk of total costs in the engineering sector.

The data on mitigation technology shows that during 2006-2011, four mitigation technologies – solar photovoltaic, solar thermal, wind and biofuels – show a 24 percent increase in global patent filing as against 6 percent for other technologies.

“The innovation in mitigation technologies is much faster,” she pointed out.

There has been a huge increase in renewables based electricity generation across all regions. “Cost has been coming down. Hence access may not be an issue,” she said. “The Paris agreement does not talk about IPR,” she said, adding that the agreement calls for collaborative approaches to R&D and facilitating access in developing countries especially in the early stages of the development cycle.

There is evidence from econometric studies that technology diffusion in general increases with IPR improvements, she said, adding, “There is no reason to believe that it will not hold true for adoption of climate change technologies.”

However, economists are more sceptical about the direct role of patents in capturing returns to R&D in the engineering sectors unlike in the pharma sector, she said.

Syed Tauqir Shah, Ambassador of Pakistan to the WTO, who was the discussant at the panel, said that for many developing countries financing and not technology is the bigger issue for clean energy technologies. Shah called for the transparent management of the Green Climate Fund.

He said that renewables are cheaper when considered over the entire lifecycle of the project and that eventually fossil fuels will become a decreasing part of the energy mix.

On the role of the WTO, Shah said the Trade and Environment Committee and the Trade Policy Reviews are forums within the WTO where environmental and trade linkages are increasingly being addressed.

Constraints on Financing

Assaad Razzouk, group chief executive of Singapore-based Sindicatum Sustainable Resources, made forceful interventions underscoring that cost of equity capital is one of the major constraints for the clean technology industry, because subsidies for fossil fuels skews against renewable energy providers. “We are more competitive despite the subsidies,” he said.

Of the estimated $1 trillion a year investment required for clean technology, about $300 billion comes from the public sector and banks lending debt. Equity capital from the private sector is missing, he said. “The remaining $700 billion won’t turn up without equity capital from the $250 trillion capital markets.”

In order to access international capital markets, he said, the lever to be used is fiduciary duty so that more investments in fossil fuels result in consequences for the directors who make these decisions. It is also important that insurance companies jack up premiums for oil and gas investments.

“We need to address the risk premium differential between fossil fuels and renewables; this is still skewed in favour of dirty energy,” he said.

The other speakers who made technical presentations included: Laila Read, project manager, Grantham Institute, and Stefaan Simons, professor of energy systems engineering and dean of the College of Engineering, Design & Physical Sciences at Brunel University, London.

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